Luck may run out for Russia's casinos

MOSCOW — Russia's grandiose scheme to build a Las Vegas from scratch in 18 months is turning into a sour bet because of the sinking global economy.

The plan calls for shutting down dozens of casinos in Moscow and St. Petersburg by July 1 and moving big-city gambling to four far-flung reaches of Russia, including building an entire new city along the Azov Sea.

"It's just not going anywhere fast," says Joseph Weinert of Spectrum Gaming Group, a U.S. firm that advised on developing one of the resorts. "The clock is ticking, and as far as we can tell there is going to be no gambling in these (planned resorts) come July 1."

If the casinos close and gamblers have nowhere to place their bets, organized crime could step in to offer illegal gambling, much like speak-easies that sprang up during Prohibition of alcohol in the USA in the 1920s.

The game change started last year when in an extraordinary effort to crack down on Russians' growing addiction to blackjack, roulette and poker, parliament approved a bill to close casinos in the capital and other major cities next summer. The measure was signed into law by then-president Vladimir Putin.

Casinos would be allowed only in four designated gambling zones in remote areas that are now little more than wilderness. This would make gambling less available but create destination-point gambling meccas — much as Las Vegas started in the Nevada desert — and spark economic development in barren areas of the vast country.

Michael Boettcher, president of Storm International, Russia's biggest casino operator, says the government is starting to talk about postponing the July 1 shutdown to give the new resorts three more years to be built.

Among the worries: lost tax revenue and jobs — and a possible rise in illegal gambling.

Gambling in Russia was a $7.8 billion business in 2006, about four times that of 2000, according to the Industrialists and Entrepreneurs Union. Moscow's 34 casinos brought in $78 million in taxes last year, says the Federal Tax Service in Moscow. Slot-machine parlors, which dot Moscow and other big cities and are being phased out, brought in three times that amount.

Boettcher says about 500,000 people would be out of jobs if the gambling ban isn't postponed.

"The day after the casinos are closed, hundreds of illegal casinos and slot halls will open all over the country," he says. "We all know what Prohibition did."

The first — and most elaborate — plan calls for a sparkling new Azov City to be built on what is now 8 square miles of sunflower plants in southern Russia.

"This is a project of Himalayan proportions," Weinert says. "It's not in the middle of nowhere. It's far removed from the middle of nowhere. It took decades to build Las Vegas."

The plan for Azov City, on which Spectrum's Weinert was a consultant, calls for 50 resort hotels, an airport, an island marina and a population of 60,000. It would eventually attract 15 million visitors a year, the regional governments predicted.

Lubov Solodovnik, spokesman for the Rostov region economics ministry, says much of the infrastructure, including power lines and a major road, would be in place next spring. Private investment to build the resort, however, has been slow in coming.

"Any investment would be from tens of millions to hundreds of millions of dollars," Boettcher says. "No one I know will take that risk."

Russian companies aren't the only ones betting against the plan. Only one of 10 U.S. and Asian firms polled by Spectrum had any interest, Weinert says.

And that was before the current global financial meltdown and low oil prices that are draining Russia's foreign account balances and making the country a less enticing place to invest.

"If gamblers would travel anywhere," he says, "it will be to established gaming venues like London, Kiev, Riga, Prague, Athens (or) Bucharest."

Igor Shevchenko, 45, works for a Moscow publishing firm and was gambling recently at the stately Metropol Club in the shadow of Red Square. He wagers up to $500 about three days a week. If the casinos close next year, he will look elsewhere for action.

"I think people will go underground to play in illegal dens," he says. "I was already invited to play in one. I know they exist."